BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 900 (Alquist and Steinberg) Hearing Date: 5/17/2010 Amended: 5/5/2010 Consultant: Katie Johnson Policy Vote: Health 5-0 _________________________________________________________________ ____ BILL SUMMARY: SB 900 would establish the California Health Benefits Exchange. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund Initial start-up costs unknown, likely in the millions of dollars General/* annually through January 1, 2014Federal Ongoing CHBE administration unknown, likely to start January 1, Special** 2014, in the tens of millions of dollars annually CDI oversight, filing review approximately $160 ongoing onceSpecial*** CHBE is operational *Unspecified amount of federal funds available likely in 2011; General Fund pressure if total expenses not met by federal funds grant **California Health Benefits Exchange Fund-likely be fully supported by an assessment on consumer premiums ***Insurance Fund _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. This bill would establish the California Health Benefits Exchange (CHBE), within the California Health and Human Services Agency (CHHS), with an appointed governing board to purchase health insurance on behalf of Californians up to 400 percent of the federal poverty level and employees of small businesses. Federal law requires states that elect to establish exchanges either through a governmental entity or a non-profit organization, in lieu of the federal government establishing it for a state, to have the exchange be operational by January 1, 2014. Start-Up Costs Initial start-up costs would likely be in the millions of dollars for staff and would, in addition to the ongoing duties of the exchange, probably include information technology (IT) investments that could be in the millions of dollars in procurement. Federal law requires exchanges to, among other duties, 1) certify qualified health plans, 2) provide for a toll-free consumer hotline, 3) maintain a website with standardized comparative information on such plans, 4) assign a rating to each qualified health plan, 5) present health plan information in a standardized format, 6) establish a calculator to determine the actual cost of coverage, 7) grant a certification attesting that an individual is exempt Page 2 SB 900 (Alquist and Steinberg) from the individual responsibility requirement. Several of these requirements would likely be instituted and met during CHBE start-up and some would be maintained as part of the exchange's ongoing operations. In order to meet these requirements, CHBE could be able to phase-in staff for each aspect of the exchange as it prepares to be operational January 1, 2014, which would minimize one-time start-up costs. CHBE start-up staff would likely include actuaries, attorneys, accountants, IT consultants, and market consultants. The creation of CHBE would also increase the oversight responsibilities of California's two health care coverage regulators. The California Department of Insurance (CDI) would likely need up to two staff counsels to review a new group of insurance policies at an ongoing cost of approximately $160,000 annually once CHBE is operational. There could be a similar impact on the Department of Managed Health Care (DMHC) in the hundreds of thousands of dollars, but it is unknown at this time. In addition to meeting the federal exchange requirements mentioned above, this bill would require CHBE to negotiate and enter into contracts with carriers. This would make CHBE an "active" purchaser of health care coverage, similar to the current functions of the California Public Employees Retirement System (CalPERS) and the Managed Risk Medical Insurance Board (MRMIB) on behalf of public employees and subscribers to the Healthy Families Program, the Access for Infants and Mothers (AIM) program, and the Major Risk Medical Insurance Program (MRMIP), respectively. Federal law and this bill also require state exchanges to enroll an individual in state and local public programs if he or she were found to be eligible for those programs through the CHBE application process. In California, this would include Medi-Cal, the Healthy Families Program, and county-administered Healthy Kids programs. Enrollment systems currently exist within California for these programs. CHBE would need to be able to interface with public programs' enrollment systems to meet this bill and federal law's requirements. ABX4 7 (Evans), Chapter 7, Statutes of 2009, permitted the Department of Health Care Services (DHCS), the Department of Social Services (DSS), and the California Health and Human Services Agency (CHHS) to develop a statewide eligibility and enrollment determination process for Medi-Cal, California Work Opportunity and Responsibility to Kids Program (CalWORKs), and the Supplemental Nutrition Assistance Program (SNAP). Per ABX4 7, the procurement and implementation of the "centralized eligibility" process is contingent on Legislative approval of the comprehensive process plan and an appropriation for its procurement. Governance and Ongoing Administration As noted above, CHBE's governance structure and functions would likely be similar to that of two existing California agencies-CalPERS and MRMIB, which negotiate and purchase benefits for approximately 1.3 million and 900,000 individuals, respectively. CalPERS' health benefits administrative budget is about $26 million annually and is fully Page 3 SB 900 (Alquist and Steinberg) funded by a 0.43 percent assessment on premiums. Existing law limits the assessment to 2 percent of premiums. MRMIB's state operations budget is about $12 million annually and is funded by a combination of state and federal funds. Based on a recent study, there would likely be 8.4 million lives eligible for the CHBE for which it would actively purchase health care coverage. If administrative costs were based on the number of lives, costs to set up and to maintain the exchange could range from approximately $12 million to $220 million annually. The high end of the estimate is unlikely to be attained due to economies of scale. According to the testimony of Jon Kingsdale, the Executive Director of Massachusetts' state exchange, the Health Connector, which was established in 2006, the state has experienced economies of scale in administrative costs. In his testimony at the California Senate and Assembly's Joint Hearing on Health Reform on May 12, 2010, Mr. Kingsdale stated that as the Health Connector's enrollment grew, the cost per enrollee went down. Federal Funds Support PPACA states that the federal government will award grants to states beginning in 2011, not later than 1 year after PPACA's enactment, in annual, unspecified amounts to assist states in establishing state Health Benefits Exchanges. If the federal funds do not cover the costs of implementation prior to the collection of fees on premiums, there could be millions of dollars in General Fund costs to make up the difference. By January 1, 2015, the federal government expects exchanges to be fully self-funded. Additionally, if a state chooses not to establish its own exchange, the federal government would run the state's exchange either directly or through a non-profit.